Indian Rupee: Strong GDP underpins higher INR yields – MUFG
MUFG’s Michael Wan highlights India’s strong GDP data, with Q1 FY2026-27 growth at 7.8% year-on-year versus 7.1% consensus. Resilient domestic demand, robust credit growth and supportive fiscal policy underpin his view that Indian rates are likely to grind higher.
The Indian rupee has strengthened as a result of India's robust GDP growth in the first quarter of fiscal year 2026-27, which grew by 7.8% year-on-year, surpassing expectations of 7.1%. This growth was driven by resilient domestic demand, strong credit expansion, and supportive fiscal policies. MUFG's Michael Wan believes that Indian interest rates will continue to rise in the near term, citing the ongoing trade idea to hold INR 5-year NDOIS despite El Nino risks and the closure of FCNR(B).
The economy's resilience is evident in the 12.1% YoY jump in financial and IT services, alongside a 7.1% YoY increase in private consumption. However, a weak monsoon slightly impacted agriculture activity, which grew by 3.6% YoY. The broader economic data indicates overall resilience, with credit growth picking up to 19% YoY. With growth remaining strong, rising early credit growth, supportive fiscal policies, and the potential impact of a strong El Nino, MUFG expects India's interest rates to move higher, rather than lower.
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